Why is China Dissing Bitcoin?
In addition to banning banks from handling Bitcoin (BTC) transactions in November, China banned financial institutions like third party payment providers in December.
The Chinese government also announced that it does not recognize BTC as a currency but does recognize it as a virtual commodity. As a result, Chinese citizens can still trade BTC at their own risk but cannot use BTC as an alternative to the renminbi to buy goods and services.
What was the motivation behind this move?
To understand why the Chinese government is not crazy about the Bitcoin, one has to understand two facts about China: it has a goal to dominate the world economy and centralization is the organizing principle of the Chinese Communist party.
A tool used in China’s efforts to dominate the world economy is controlling their currency. It is no secret that instead of letting their currency freely trade in a competitive market, they are artificially keeping the renminbi weak to make their exports cheaper and therefore more competitive.
The Chinese government needed to clamp down on BTC before it gained enough momentum to threaten the government’s monopoly on currency. After all, if BTC became a medium of exchange for economic transactions, the Chinese renminbi would lose market share and China would lose the power and influence to manipulate their people and their destiny.
Centralization is the very nature of a Communist government like China. For those in power, there is no current conceivable need to decentralize something as important as their control over currency and cede it to BTC, which they cannot control.
The sudden increase in interest by Chinese citizens in BTC (BTC software downloads in China outnumbered the U.S. by 2-to-1) and how retailers and restaurants quickly learned how to accept BTC transactions must have alarmed Beijing.
There are also immediate and practical reasons for the Chinese government coming down on BTC. Because BTCs trade globally and there is some anonymity with owner names, it could be a method for Chinese citizens to transfer their wealth out of China without the usual foreign exchange controls.
It also offers opportunities for criminals to launder money in a less regulated environment. The Chinese government loathes any currency leaking out of their control, whether earned legally or not.
Note that China still allows BTC to be traded like a commodity such as gold, which means in a highly regulated environment. This allows China to study BTC and decide on its own schedule whether to allow its use or develop its own version if it is in their best interest to do so.
When banks were banned by China from accepting BTC, the price plummeted from $1,200 to $600 before stabilizing at $800. When other financial institutions were banned, BTC traded as low as $422 before recovering in a few weeks to around $800 again.
Speculators swung from elation from an encouraging U.S. Senate hearing to being panicked from back-to-back bad news that one of the largest markets in the world was being closed off to BTC.
Looking beyond the volatility and these early setbacks in clearly what is a long-term game, the bigger and more important picture is being missed. China is afraid of BTC because of its real potential to disrupt its plan for economic supremacy. Bitcoin by its very nature is decentralized. It is subject to the free market and the trust between two people doing a transaction, not by the fiat of a government mandating its own will and purposes.
Consequently, China’s ban actually validates cryptocurrencies and their transformational possibilities.
The Chinese government also announced that it does not recognize BTC as a currency but does recognize it as a virtual commodity. As a result, Chinese citizens can still trade BTC at their own risk but cannot use BTC as an alternative to the renminbi to buy goods and services.
What was the motivation behind this move?
To understand why the Chinese government is not crazy about the Bitcoin, one has to understand two facts about China: it has a goal to dominate the world economy and centralization is the organizing principle of the Chinese Communist party.
A tool used in China’s efforts to dominate the world economy is controlling their currency. It is no secret that instead of letting their currency freely trade in a competitive market, they are artificially keeping the renminbi weak to make their exports cheaper and therefore more competitive.
The Chinese government needed to clamp down on BTC before it gained enough momentum to threaten the government’s monopoly on currency. After all, if BTC became a medium of exchange for economic transactions, the Chinese renminbi would lose market share and China would lose the power and influence to manipulate their people and their destiny.
Centralization is the very nature of a Communist government like China. For those in power, there is no current conceivable need to decentralize something as important as their control over currency and cede it to BTC, which they cannot control.
The sudden increase in interest by Chinese citizens in BTC (BTC software downloads in China outnumbered the U.S. by 2-to-1) and how retailers and restaurants quickly learned how to accept BTC transactions must have alarmed Beijing.
There are also immediate and practical reasons for the Chinese government coming down on BTC. Because BTCs trade globally and there is some anonymity with owner names, it could be a method for Chinese citizens to transfer their wealth out of China without the usual foreign exchange controls.
It also offers opportunities for criminals to launder money in a less regulated environment. The Chinese government loathes any currency leaking out of their control, whether earned legally or not.
Note that China still allows BTC to be traded like a commodity such as gold, which means in a highly regulated environment. This allows China to study BTC and decide on its own schedule whether to allow its use or develop its own version if it is in their best interest to do so.
When banks were banned by China from accepting BTC, the price plummeted from $1,200 to $600 before stabilizing at $800. When other financial institutions were banned, BTC traded as low as $422 before recovering in a few weeks to around $800 again.
Speculators swung from elation from an encouraging U.S. Senate hearing to being panicked from back-to-back bad news that one of the largest markets in the world was being closed off to BTC.
Looking beyond the volatility and these early setbacks in clearly what is a long-term game, the bigger and more important picture is being missed. China is afraid of BTC because of its real potential to disrupt its plan for economic supremacy. Bitcoin by its very nature is decentralized. It is subject to the free market and the trust between two people doing a transaction, not by the fiat of a government mandating its own will and purposes.
Consequently, China’s ban actually validates cryptocurrencies and their transformational possibilities.
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